Friday US market wrap: stocks and bonds in focus - Westpac

A very strong finish to the week for US equities and bonds was most notable Friday, with little net movement in major currencies. 

Key Quotes:

"The US Federal Reserve’s semi-annual monetary policy report revealed little new, reaffirming the key themes - gradualism on policy, a terminal rate lower than in the past, an outlook favouring moderate growth, and a labour market near/just below full employment."

"It held back from signalling an even more upbeat picture in the new year, as did the FOMC minutes. There will be plenty of interest in the testimony by new Fed chair Powell to a House committee on Tuesday."

"There was also lots of comment from Fed officials Friday, notably San Francisco’s John Williams who was upbeat, including suggesting “three or four rate increases in 2018”. This seemed to lend a little support to USD/JPY into Friday’s NY close, leaving it about flat on the day, just short of 107."

"CAD was the day’s outperformer, USD/CAD falling from 1.2700 to 1.2620 after strong CPI inflation data. EUR eked a narrow, sideways range between 1.2285 and 1.2320. GBP/USD was choppy at times, but starts the week a touch firmer, near 1.4000, with a little help from weekend comments from Bank of England’s Ramsden. He said that faster wages growth means he sees the case for interest rates rising sooner rather than later.

AUD/USD slipped to 0.7805 in NY trade Friday but then ground back to 0.7840, about flat overall. NZD/USD performed poorly, falling from 0.7320 to 0.7270 – a two-week low. AUD/NZD extended Thursday’s rise, from 1.0700 to 1.0755.

US 10yr treasury yields fell from 2.93% to 2.86%, while 2yr yields slipped from 2.25% to 2.24%. Fed fund futures yields continued to price the chance of another rate hike in March as effectively a done deal with a total of four hikes priced by end-2019. The Fed report had no obvious impact on market pricing.

Event risk: Australia’s calendar is low key until Thursday’s capital expenditure data. Next week we see Q4 GDP and the RBA meeting. Asia’s data calendar is limited to Singapore Jan industrial production. There is also little data of note in Europe and only mild interest in the volatile US new home sales series."